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Europe: DNA of Real Estate - Q1 2018

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The DNA of Real Estate covers the key office, logistics and high street destinations within Europe and provide an overview of their quarterly performances, giving you a summary of prime rents and yields for the respective cities and markets.

Rental growth in the European office market reached its highest point since the beginning of 2012 in the first quarter of the year.

The sector’s strong rental growth is supported by continued positive performance across German, Nordic and Semi-core markets, which pushed weighted growth across Europe to 0.8% quarter-on-quarter (q/q). This was more than the logistics sector (0.4% q/q) and high street retail which returned to growth with a modest 0.2% q/q.

Yield movements have been more modest in the first quarter with both retail high street and logistics moving in 5bps to 4.15% and 6.1% respectively. Office yields edged in a modest 1bp to 4.46%. The means European prime weighted yield for both offices and logistics are now at their lowest on record.

Offices
Office rents grew by 0.8% in Europe, the highest quarterly growth rate in the past six years. The last four quarters have seen positive growth in at least 15 out of the 47 monitored office markets, providing clear signs of positive momentum in leasing markets. Growth this quarter was led by Milan at 5.6% q/q supported by strong demand, especially in central locations. Prime rents in Berlin grew by 5.2% q/q and by 16.2% y/y while both Dusseldorf (3.7%) and Munich (1.4%) also registered continued rental growth.

Logistics
Rents were flat in the majority (39 out of the 45 monitored) logistics markets in the first quarter of 2018. Overall European rents grew 0.4% q/q. Growth was mostly limited to a handful of locations in CEE (+1.8%) and Semi-core (+1.2%), with a more modest 0.3% rise in Germany. Notably, Lisbon posed a 7.1% quarterly growth in Q1 due to strong demand, driven by e-commerce, and very limited supply of high-quality logistics space. Rents in Warsaw, which benefit strong demand from logistics and e-commerce operators, grew 2.9% q/q.

High Street Retail
Having posted negative growth over the past two quarters, high street retail rents across Europe grew by a modest 0.2% over the quarter. Rental growth remains patchy with only 8 out of the 45 monitored markets posting growth. These were mostly in CEE and led by Budapest (8.3%) where a stronger economy, growth in wages and household consumption, and rising demand from retailers is pushing rents higher in the main shopping street. Similar fundamentals supported rental growth in Sofia (4.2%) and Prague (2.3%).

High street retail yields compressed by a further 5bps in Q1, and a total of 16bps in the past 12 months, to reach a 10-year low of 4.15%. Markets in France, Germany and Benelux where current yields are among the lowest in Europe contributed most to this compression, reflecting the enduring interest in retail properties in these regions from both domestic and international investors. Yield movements in the UK, CEE, Nordic and Semi-core markets are minimal year-to-date and are not expected to fall much by the end of this year.

Source : Cushman & Wakefield

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